Pierr Johnson

I would like to invert your argument. Apple, Qualcomm, and Samsung have been major Tech players for one to two decades and each attained its leadership with its own technology(ies). Likewise Google, with Android. The beauty of ARM's IP allowed it to participate, via IDMs and foundries, but hardly made it the singular enabler. Think of the economic value of ARM's contribution in terms of the very low royalty rate it earns, especially relative to what Qualcomm captures with its royalties, which are still a small percentage. I've been a huge fan of ARM and have followed it for over a decade. But it is what it is.

It is Intel's view that its processor designs will achieve parity with ARM in terms of power efficiency in the next iteration or two. In most other respects, ARM is far behind (e.g., 64-bit). Of course, Intel's process advantages are likely permanent. It will always get there a year or two ahead of TSMC and Samsung. The superior position in both design and process, once attained, will be very difficult to reverse. If achieved, this will be a permanent, fundamental change in technology and market position.

Regarding new market penetration by Intel or the ARM ecosystem: years of observation indicate to me that the power of incumbency is very high and Intel is notably persistent. ARM provides processor cores and technologies and can only be as persistent or successful as its customers and their manufacturers and customers. It will be very interesting to see this to unfold

Thanks for the thoughtful article, and for promoting such a vigorous exchange in our community. You provide a good summary of the “ARM Ascendant” thesis. I do think you have neglected to reference or refute key counter-arguments, however. Intel’s technology lead remains and will deliver superior power efficiency with existing and new designs as we move down the roadmap. Samsung dedicates its leading process technologies to NAND and DRAM, and both Samsung and TSM, their achievements notwithstanding, generally lag Intel by a node at any given time. Intel has indicated this will not allow this to change. Moreover, process and design issues at the leading edge have been a recurring problem for TSM, specifically with ARM-based devices. Of course, we know about them because of the resulting finger pointing and can be confident Intel and Samsung experience them as well, with little public notice.

Another thing that occurs to me, as huge a fan of Gulliver’s Travels as I am, is that the challenge to Intel in the App Processor market is from not the Lilliputian of Arm’s ecosystem, but other Tech giants, specifically Apple/Samsung and Qualcomm/TSMC. And as Ashraf notes, both Apple and Qualcomm use custom implementations of ARM technology. This market has become so unattractive, that TI has pulled its OMAP offering. We might wonder why Intel seeks a spot at all. But it is important to note that the design and process approaches Intel now uses with its SOCs differ from those dedicated to volume PCs.

So many here are comparing ARM and Intel to Intel and IBM in computing, but the analogy is just faulty. When IBM chose Intel to displace Motorola in its earliest PCs, it elevated Intel to achieve the dominating position it now has. And IBM was the leading PC manufacturer at the time, intent as it was in fostering the transition from business typewriters (where it led) to Word Processing. Compaq, AST and latterly HP joined the fray, but it was the entrance of Dell that first challenged IBM in this market, as its initial growth phase lost some momentum. It was only with the sale of this business to Lenovo that IBM ceded its leading position in this market. Note, too, that though IBM was part of the PowerPC consortium, it remained committed to the Intel/Microsoft platform for its PC offering.

All of this aside, I really appreciate your article. Two great companies dominating markets that now collide; at the margin is no longer marginal. And I will definitely follow up on some of your references

Good points. The neat thing about Tablets is they displayed no traction until Apple launched the iPad as a Smart-Phone processor-based device. The beauty is that it is not a compute device and the resource demands of a Intel Microprocessor are entirely unwarranted. So Intel's absence is not that surprising to me, especially since iPad-type tablets are still relatively a new platform. I agree that Windows 8 offers one route into this market for Intel. But I also feel that Intel's true traction in the Handset and Smart Phone offers another one.

I did not comment here on valuation and have both in my model portfolio as top tier Technology Plays. As an IP provider, ARM captures a sliver of the end market value of its products, hence its very high valuation metrics and low revenue model. Even as an IP provider, it commands a valuation that is extended to even a greater degree by its remarkable traction. So if ARM falters in any way, a sharp contraction in these metrics will result. Any sign of Intel's success in the Smart Phone market could provide this trigger. Moreover, the likelihood of such success, even to just a modest degree, has never been higher. So, yes, things are fundamentally changing and there is a classic pair trade in play here.

We have two great companies here with amazing technology poised at the frontier of each others' markets. The slightest tip of Intel towards ARM's core markets will reveal a profound mis-allocation of capital, and a sharp contraction of ARMH stock will result. The economic impact of any Intel success may be trivial, indeed. But ARMH shares could be crushed, as they say.

Dana, thanks for the reply. I agree that strong tablet sales are muting PC demand. But I don't think that is what has produced the revenue miss, given its magnitude. Intel identified channel de-stocking, weak Enterprise PC demand and weakening emerging market demand as factors behind the miss. Tablet demand is as they expected, I'm guessing.

A couple other points worth note: Intel identified the factors that produced the large revenue miss; ARM Holdings is not mentioned and the impact of strong iPad sales was likely fully factored into prior guidance.

I have a comment on the design flexibility of the ARM-IDM-foundry model: this has always been a strong selling point for ARM in the handset market, as has its low power design. That said, Apple with its iPhone has sparked an emphasis on systems and platform integrity that could ultimately require more uniform processing solutions and this could well foster Intel’s entry into the market. It remains to be seen.

Sufficient power efficiency is the byproduct of Intel’s Technology Roadmap, as it executes one node ahead of the rest of the industry.

The competitive dynamic between Intel and ARM holdings is as interesting as it is complicated. I have written on it in the past and expect to do so again soon.